Air France also has set up regional bases that are to be operated more efficiently than its CDG hub. But the airline intends to remain in secondary markets under its own brand. It also has a substantial, fully owned regional aircraft operation.
Lufthansa is taking more drastic steps. It has already cut back on regional capacity—at least as far its own aircraft are concerned—and now is pulling out of vast parts of its current European network. Flight operations for non-hub traffic are being transferred to its lower-cost subsidiary, Germanwings. A revamped Germanwings will operate a fleet of almost 90 aircraft and will be covering all point-to-point markets outside the hubs in Frankfurt and Munich. The Lufthansa brand will exit this segment to focus exclusively on long-haul and hub-and-spoke routes.
“Our European operations have been taking substantial losses for a number of years,” Lufthansa CEO Christoph Franz says. In the past, significant profits in the long-haul field could be used to cross-subsidize the short-haul network, but that is no longer the case. “We are also seeing prices fall on long-haul routes,” Franz adds. So, the airline is now making serious efforts to return its short-haul operation to profitability.
Franz points out that in light of the recent links forged by Qatar Airways/Oneworld, Etihad Airways/Air France-KLM and Emirates Airline/Qantas Airways, Lufthansa cannot ignore the structural changes in long-haul operations. The airline plans to cultivate relationships with existing joint ventures, such as United Airlines or All Nippon Airways.
The new short-haul offspring will use the Germanwings brand and be based at Cologne/Bonn Airport.
Approximately 30 Lufthansa Airbus A320s and A319s are to be transferred to Germanwings to bolster its fleet of about 30 A319s. Additionally, 19 Bombardier CRJ900s, operated by regional carrier Eurowings, will complement the network, although Eurowings will not be merged into the new entity.
Carsten Spohr, CEO of Lufthansa’s passenger airline business, says unit costs in the segment are nearly 20% lower than in the hub-and-spoke system today, but another 20% is targeted. Spohr says the transition will take about two years.
The new Germanwings will not offer a business class, thus Lufthansa is the first major European legacy carrier to abandon that concept on short-haul services. Business class will be available only on hub-feeder services.
Significantly higher aircraft utilization is a key goal. The airline’s short-haul fleet currently flies about 8 block hr. per day due to the complexities of the hub-and-spoke operation and because it is rarely used on weekends. A bump up to 10 block hr. per day is being sought.